We are grateful. That 2015 is behind us, and 2016 has yet to be written. Though the public markets have started 2016 with a whimper or a groan, there is a full year of history to make, before we put the wraps on 2016.
Looking at 2015, it was, to say the least, interesting. There was little progress, and much volatility. By the numbers, for calendar year 2015, the Dow Jones Industrial Average closed at 17,425, down 2.23%, while the Dow Jones Transportation Index was down 17.85%. Of the thirteen most common domestic Dow Indices, eleven were down for 2015, with returns ranging from -1.48% to -17.85%. The Large Cap Growth TSM was up just over 2%, and the Internet Index was up almost 29%.
Most NASDAQ indices, which focus on a slice of primarily small company stocks, did well, with returns in positive territory, and bunched between 5.75% and 8.8% for the year. The Standard & Poor’s Indices were mostly in the red, with the 500 Index off less than 1%, and the MidCap 400 and SmallCap 600 off 3.71% and 3.36% respectively.
The New York Stock Exchange sectors were mixed, with healthcare and pharmaceuticals up 3.49% and 1.62% respectively, while energy was down more than 25%, and the Market Composite was down more than 12%. The Russell 1000, 2000, and 3000 Indices were down between 1.1% and 5.7%, and the Philadelphia Gold/Silver Index was off more than 34%.
International stocks were very volatile, with the U.K. finishing the year down, Japan flat, and parts of China, and Germany, up in single digits. The Global Dow was down 6.6% for the year, the Asia Dow was down 9.65%, and Singapore was down 14%. Vietnam, South Korea, and Pakistan were up slightly.
The median stock in the Russell 3000, which is a good proxy for the broad market, is now down more than 20% from its high. Market highs in 2015 were reached in February for the DJIA, when it closed on the 24th at 18,209, and in May for the S&P 500, when it closed on the 21st at 2130.
The primary takeaway is that the broad market, and most stocks, had a tough year in 2015, with only select sectors doing well, or even in positive territory.
In the bond market, the story is similar. Using two Vanguard Bond Index ETFs as proxies, intermediate bonds (BLV) were down 7.9%, and short term bonds (BSV) were down 0.47%.
So, the safe place in 2015 was in cash. Otherwise, we would have needed a crystal ball that allowed us to effectively pick companies or sectors.
In other news, GDP growth stateside was 2% in 2015, ahead of most European economies, Japan, and emerging markets economies. Job growth has been healthy, with 200,000 new jobs each of the last several months, and inflation remains low. Low energy prices, while hammering stockholders of energy companies, has increased discretionary income for most households. Transportation is one of the three major expenses, along with housing and food, for most households.
At the same time, corporate profits have shrunk over the last year, with PE’s staying in line, currently about 16 for the S&P 500.
As noted in other commentaries, Congress passed the PATH Act of 2015, and the President signed it into law on December 18th. Some key highlights are…the research and development credit for business is now permanent, as is enhanced Section 179 expensing, with the limit expanded to $500,000. Temporary tax extensions are five year bonus depreciation, a five year extension of the Work Opportunity Tax Credit, and Federal Empowerment Zone Job Credits.
We live in a global marketplace, as most of us are aware. Companies from established players to startups are evaluating domicile based on tax outcomes. Given the mobility of much of the workforce, and/or the ability to work remotely, companies have the ability to place their headquarters any number of places in the world.
When it comes to decisions based on tax outcomes, the U.S. is no longer a leader, after being the driver in creativity and modernization for more than a century. In fact, according to a new report by the Tax Foundation, every country in the Organization for Economic Cooperation and Development (OECD) has established a corporate tax rate below the U.S. rate of 35%. Given this disparity, the question of whether the best and brightest in the world will continue to flock to the U.S. is a question.
Enough of the past. At any point, we can choose our future. The songs, sermons and seminars of our lives are some of those experiences that help us see what could be. They help fire the imagination and expand our horizons, allowing us, if we choose, to make changes and move forward.
Quote of the week:
“Don’t dwell on what went wrong. Instead, focus on what to do next. Spend your energies moving forward toward finding the answer.” – Dennis Waitley
Randy Brunson is the founding shareholder of Centurion Advisory Group. Mr. Brunson
has invested most of his thirty five year career in the area of financial services.